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LEAD: BOJ should ditch zero-interest-rate policy soon: Mizuno.

OTSU, Japan, March 13 Kyodo


Bank of Japan Policy Board member Atsushi Mizuno indicated Monday that the central bank should seek an early exit to the zero-interest-rate policy in order to secure mobility in monetary policy in the future.

''If there is no margin of a policy interest rate, the role of monetary policy will be quite limited at the time of an economic slowdown,'' Mizuno told a news conference in Otsu, Shiga Prefecture.

As long as the BOJ continues the zero-interest-rate policy, there will be virtually no freehand in monetary policy, he said.

''The risk of an excessive rise in asset prices would emerge if expectations grow too much that the zero-interest-rate policy or extremely low rates are likely to last long,'' he said.

His comments suggest that the BOJ should raise the unsecured overnight call money rate soon so that the central bank can spur the economy with lowering the benchmark short-term interest rate again when the economy slows down in the future.

''The termination of the quantitative easing policy was just a passing point toward normalization of monetary policy,'' Mizuno said.

''It is quite natural to return to normal conditions from the super-easy monetary environment in line with the economic upswing,'' he said.

The BOJ on Thursday scrapped its five-year quantitative monetary easing policy, switching back to the unsecured overnight call money rate as a monetary adjustment target, rather than the outstanding balance of current account deposits held by private financial institutions at the central bank.

At the same time, the BOJ vowed to hold short-term interest rates steady near zero for a while, assuring the financial market that the BOJ does not plan sharp rate increases in the near future.

Regarding an inflation reference rate ranging from zero to 2 percent presented by the BOJ on Thursday in a new policy framework to seek price stability in the medium and long term, Mizuno said the central bank released the figure as it slightly improved transparency in monetary policy.

''The range also suggests that prices in Japan have moved at lower levels than other overseas economies and they are likely to do so,'' he said.

Earlier in the day, Mizuno said in a speech to local business leaders in Otsu that the central bank aims to conduct a forward-looking and balanced monetary policy.

Mizuno said the central bank needs to gradually lower the outstanding balance of the current account deposits, carefully weighing the situation in the short-term financial market.

The financial market could react nervously to possible strong economic indicators and stock price rises, producing upward pressure on short-term government bonds, because many market players had expected a policy change in April or later, he said.

The BOJ had set the current account balance target in the range of 30 trillion to 35 trillion yen.

Mizuno also indirectly criticized government pressure on the BOJ not to seek an early policy shift, saying such a move is believed to have produced unnecessary volatility in the bond market and to have incurred losses.
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Publication:Japan Weekly Monitor
Date:Mar 13, 2006
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